When most people decide to take out a mortgage, their first stop is the bank. This may be because they trust a bank to manage such a significant loan, they believe that it offers the best options and rates, or they simply lack knowledge about other options. Banks do hold the vast majority of all home loans in New Zealand, so it makes sense that people tend to go to them first – but they’re not the only option.
In New Zealand, roughly 2% of home loans come from a non-bank lender, but this number is on the rise. Non-bank mortgages can be just as secure as traditional home loans and often offer rates and structures similar to banks’. And because non-bank lenders aren’t bound by restrictions that apply to banks, they have more flexibility to lend to buyers in certain circumstances. If you’re struggling to qualify for a home loan or you want to borrow more than the bank will lend you, a non-bank mortgage might be right for you.
The non-bank difference
As the name suggests, a non-bank lender is any business offering home loans that’s not a traditional bank, credit union, or building society. These businesses are lenders only, so they’re not able to offer savings or deposit accounts, or term deposit investments.
Although the perception is that alternative lenders are less trustworthy than banks, this is actually not the case. Like banks, non-bank lenders are regulated by the Reserve Bank of New Zealand, so they still have to follow many of the lending rules banks do. Unlike banks, they’re not governed by the banking ombudsman or the Financial Markets Authority, which means that they have fewer regulations to follow overall. They also tend to be smaller, privately-owned businesses, which means they have fewer internal rules and policies restricting their lending as well.
Why choose a non-bank lender?
Traditional home loans work for most borrowers, but there are good reasons to look further when it comes to your mortgage – particularly if you’re not the average home buyer.
Here’s why a non-bank mortgage could be right for you:
Flexible loan requirements
Big banks tend to have stringent requirements for people seeking a loan. They often require a significant deposit – usually 20% of the value of the home – along with proof of income, and other documentation such as building reports and valuations. These requirements may be set by the bank itself, or by an outside governing body. There’s usually very little room for flexibility or compromise, so if the bank says no to your loan request, a non-bank lender may be your only other option.
Unlike banks, non-bank lenders can offer more flexibility in lending. Some will approve home loans with a smaller deposit – as little as 10% in some cases. Others will help those who have been turned down by the bank, giving home loans to people with bad credit ratings, or self-employed people who find it difficult to provide proof of income. They often require less paperwork, which means loan approvals can be turned around more quickly.
Great rates and fees
Many borrowers assume that big banks automatically offer better rates and fees, simply because they’re bigger. But this isn’t always the case. Many non-bank lenders offer competitive interest rates and monthly fees. In fact, because some non-bank lenders are owned by a collective of members, their profits are passed on to the customer in lower rates, rather than going to shareholders.
Personal vs impersonal
When you’re taking on something as significant and personal as a home loan, you want to know that your lender understands your situation, and wants what’s best for you. Big banks have thousands of customers, which often leads to impersonal service – you may not even have a set loan manager to contact if you have questions.
That’s why many prospective borrowers prefer the more personalised service offered by smaller, non-bank lenders. Because this type of lender has far fewer customers, they’re often able to spend more time with each client and offer more personalised advice and support. If your financial situation is more complicated, this can be significant. Knowing that you have a specific manager to contact if anything goes wrong, and that someone is keeping track of your loan documents and information, can give you peace of mind and make the loan process less frustrating.
Niche products to suit your needs
All mortgages are not created equal. Non-bank lenders are appealing to some prospective borrowers because they often specialise in niche markets and offer mortgages to suit. For example, some non-bank lenders focus on finance for first home buyers, while others are experts in refinancing, debt consolidation, or short-term bridging finance. It’s all about finding the lender – bank or non-bank – that works for your situation.
The right loan from the right lender
Getting a mortgage from a big bank is the right choice for many borrowers – that’s why 98% of New Zealand home loans still come from banks. But if the bank isn’t working for you – if you’ve been turned down for a loan, if your deposit is too small, or if your situation is complicated – it’s worth approaching a non-bank lender. They might be able to make your mortgage dreams a reality after all.
Want to know more about non-bank loans? Talk to the team at Global Finance now.